FACTORS INFLUENCING PARTICIPATION OF SMALL MEDIUM … · 2020-04-16 · influence SMEs...

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FACTORS INFLUENCING PARTICIPATION OF SMALL MEDIUM ENTERPRISES IN EXPORT TRADE IN KENYA: A CASE OF MANUFACTURING SMALL AND MEDIUM ENTERPRISES IN NAIROBI COUNTY JOSPHAT KARANJA MUNGAI

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Page 1: FACTORS INFLUENCING PARTICIPATION OF SMALL MEDIUM … · 2020-04-16 · influence SMEs participation in export trade. This study sought to investigate factors affecting participation

FACTORS INFLUENCING PARTICIPATION OF SMALL MEDIUM ENTERPRISES IN EXPORT TRADE IN KENYA: A

CASE OF MANUFACTURING SMALL AND MEDIUM ENTERPRISES IN NAIROBI COUNTY

JOSPHAT KARANJA MUNGAI

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Vol. 2 (28), pp 539-559, Nov 10, 2014, www.strategicjournals.com, ©strategic Journals

FACTORS INFLUENCING PARTICIPATION OF SMALL MEDIUM ENTERPRISES IN EXPORT TRADE IN

KENYA: A CASE OF MANUFACTURING SMALL AND MEDIUM ENTERPRISES IN NAIROBI COUNTY

Mungai, J. Karanja, Jomo Kenyatta University of Agriculture and Technology (JKUAT), Nairobi Kenya

Ogollah, K., Jomo Kenyatta University of Agriculture and Technology (JKUAT), Nairobi, Kenya

Accepted November 10, 2014

ABSTRACT

The role played by the micro and small enterprises (MSE) sector has increasingly been recognized and appreciated

not only in the developing but also the developed countries globally. This appreciation has largely been due to the

contribution of the MSE sector to economic development particularly in employment creation. Kenyan small and

medium sized enterprises, however, are still not fully competitive, especially in foreign markets which require

efficient production, good management structures, market capabilities, product and service development that

meets international standards and strong networks in conducting business operations. Despite the importance of

export to economic development among economies there is little attention has been given to the factors that

influence SMEs participation in export trade. This study sought to investigate factors affecting participation of small

medium enterprises (SMEs) in export trade in Kenya with focus to manufacturing SMEs in Nairobi County. The study

aimed to investigate whether firm characteristics, skill workforce, government assistance and foreign investment

influence SMEs participation in export trade in Kenya. The target population of this study was manufacturing SMEs

registered with KRA. The study relied mostly on primary data sources. The study employed a stratified simple random

sampling technique in coming up with a sample size of 114 respondents. The study generated both qualitative and

quantitative data where quantitative data was coded and entered into SPSS and analyzed using descriptive statistics.

The study found that there was a positive correlation between SMEs participation on export trade and firm

characteristic, skilled labour, government assistance and foreign investment. Based on the study findings, the study

recommended that managers should take into account the marketing and trading dimension of which plays a

substantial role in export trade. Management should ensure competency in workforce since it is directly linked to

export trade. Government should give priority on promoting SMEs export activity since they have potential to

provide sustainable development if they are exposed to foreign trade. On foreign investment, the study

recommended that management staffs should recognize collaboration with foreigners, since export performance is

influenced by controllable internal determinants.

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Purpose of the Study.

This study sought to explore factors influencing

participation of small medium enterprises in

export trade in Kenya. Over the years the role

played by the micro and small enterprises (MSE)

sector has increasingly been recognized and

appreciated not only in the developing but also

the developed countries globally. This

appreciation has largely been due to the

contribution of the MSE sector to economic

development particularly in employment

creation. It is argued that in Latin America and

the Caribbean, MSE’s make up more than 95% of

the total number of business establishment and

absorb more than 85% of total private sector

employment in most countries (Sithore, 2007).

The sector accounts for almost 60% of the

Canada’s private sector employment and 43% of

private sector gross domestic product (GDP). In

countries like Botswana, Malawi, Swaziland and

Zimbabwe, the estimated number of people

engaged in MSE activities is nearly twice the level

of employment in large enterprises and in the

public sector (Mead & Liedholm, 2008).

Background of the Study

This study sought to explore factors influencing

participation of small medium enterprises in

export trade in Kenya. Over the years the role

played by the micro and small enterprises (MSE)

sector has increasingly been recognized and

appreciated not only in the developing but also

the developed countries globally. This

appreciation has largely been due to the

contribution of the MSE sector to economic

development particularly in employment

creation. It is argued that in Latin America and

the Caribbean, MSE’s make up more than 95% of

the total number of business establishment and

absorb more than 85% of total private sector

employment in most countries (Sithore, 2007).

The sector accounts for almost 60% of the

Canada’s private sector employment and 43% of

private sector gross domestic product (GDP). In

countries like Botswana, Malawi, Swaziland and

Zimbabwe, the estimated number of people

engaged in MSE activities is nearly twice the level

of employment in large enterprises and in the

public sector (Mead & Liedholm, 2008).

Strong export performance is known as one of

the important factors in driving a country’s

economic growth, since exports can improve a

firm’s production efficiency to overcome higher

trade barriers and address different market

tastes in competitive international markets.

Kenyan small and medium sized enterprises

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(SMEs), are still not competitive in foreign trade

which require efficient production and strong

networks in their operations. More importantly,

the competitiveness of Kenya industry,

particularly SMEs, has traditionally relied on low-

cost labour and natural resource (raw materials)

advantages rather than technological capability

or qualified human capital. Thai business

segments, nevertheless, are now under the

“Nut-Crackers Effect” (OSMEP, 2007).

Behavioral Theories

Several theoretical approaches have focused on

the phenomenon of SMEs' internationalization

by exploring empirical links between resources,

networks and foreign expansion (Ahmed, 2012).

However, behavioral theories remain certainly

those that have significantly impacted the

literature on firms' internationalization. Under

the behavioral view, firms penetrate

international market incrementally to improve

their learning and knowledge of the market on

the one hand and on the other hand by adjusting

and developing their available resources in order

to effectively meet the needs of the intended

market (Khayat, 2004).

The scientific literature has often established

links between internationalization success and

firm characteristics such as organizational

learning. In fact, while Khayat (2004) asserts that

learning capacity has a lot to do with the decision

of a firm to go abroad. Kaleka (2012) sees

internationalization as an incremental process in

which companies are in a context of uncertainty

and seek to minimize their business risk. The

accumulation of knowledge about international

markets helps increase learning abilities of the

firm, reduce uncertainty and risk to which it is

subjected, and improve its competitive position

and ability to capture new business

opportunities overseas (Autio et al., 2000).

Accordingly, it is in this sense that companies

seek to offset their lack of knowledge by

targeting foreign markets with many similarities

to their domestic market.

New Trade Theory

This theory was advocated by Paul Krugman, he

was a leading academic in developing New Trade

Theory. Krugman was awarded Nobel Prize

(2008) in economics for his contributions in

modeling these ideas of trade patterns and

location of economic activity. New trade theory

(NTT) suggests that a critical factor in

determining international patterns of trade are

the very substantial economies of scale and

network effects that can occur in key industries.

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Another element of new trade theory is that

firms who have the advantage of being an early

entrant can become a dominant firm in the

market. This is because the first firms gain

substantial economies of scale meaning that

new firms can’t compete against the incumbent

firms. This means that in these global industries

with very large economies of scale, there is likely

to be limited competition, with the market

dominated by early firms who entered, leading

to a form of monopolistic competition. New

trade theory also becomes a factor in explaining

the growth of globalization.

Comparative Cost Theory

Comparative advantage theory, originated from

David Ricardo in the early part of the 19th

century. It’s useful to present it in detail because

it is one of most powerful explanation of trade

concepts put forward by economic professionals

in foreign trade.

One reason why the amount of goods and

services available to a country at a point in time

can increase through trade is because it allows

the country to buy goods and services from

sources where it costs comparatively less to

produce them. Local resources tied up in the

production of these goods in the absence of

trade are hence liberated so that comparatively

more of other goods can be produced.

Classical Trade Theory

Classical trade theory dictates that the extent to

which a country exports and imports relates to

its trading pattern with other nations. That is,

countries are able to gain if each devotes

resources to the generation of goods and

services in which they have an economic

advantage (Ricardo, 1817). Via export trade

country identifies opportunity. Therefore,

classical trade theory effectively describes the

scenario where a country generates goods and

services in which it has an advantage, for

consumption indigenously, and subsequently

exports the surplus. Consequently, it is sensible

for countries to import those goods and services

in which they have an economic disadvantage.

Kenya Perspective of SMEs Participation

In Kenya, they create employment at low levels

of investment per job, lead to increased

participation of indigenous people in the

economy, use mainly local resources, promote

the creation and use of local technologies, and

provide skills training at a low cost to society

(ILO, 2009). Estimates are that there were about

900,000 small and microenterprises

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establishments employing 2 million Kenyans and

generating about 14 per cent of the country’s

GDP (Dolman, 1994). It is also stated that in

Kenya this sector accounted for 20% of the GDP

in 1999 (CBS, 1999) and 64% of the urban

employment by 2002 (Karekezi & Majoro, 2005).

According to the Economic Survey (2006) the

sector contributed over 50 percent of new jobs

created in the year 2005. In addition to its

importance in creating jobs, the small enterprise

sector contributes 33% of the value-added in

manufacturing and the retail trade in Kenya

(Onyango & Tomecko, 1995).

The Kenyan MSE sector is mixture of self-

employment outlets and dynamic enterprises

involved in an array of activities that concentrate

in urban areas but are also evident in rural

Kenya.

These enterprises cut across all the sectors of the

Kenyan economy and provide one of the most

prolific sources of employment creation, income

generation, and poverty reduction (Republic of

Kenya, 2005). Majority of MSEs in Kenya are

informal in nature with majority not regularizing

their operations beyond the licensing

requirements by local authorities. However, they

play an important role in the economy by

creating employment at low levels of investment

per job, promoting local creativity and

innovation and creating skills training at a low

cost to society (KIPPRA, 2009).

Research Design

Orodho (2003) defines a research design as the

scheme, outline or plan that is used to generate

answers to research problems. This study

employed a descriptive research method.

Creswell (2008) stated that the descriptive

method of research is to gather information

about the present existing condition. The

emphasis is on describing rather than on judging

or interpreting. However some qualitative

approach was used in order to gain a better

understanding and possibly enable a better and

more insightful interpretation of the results from

the quantitative study.

Target Population

Borg and Gall (1996) defines population as all

members of a real set of people, events or

objects to which the researcher wishes to

generalize the results of the research. According

to Chein (1981) a population is the aggregate of

all cases that conform to some designated set of

specifications.

The target population in this study comprised

registered manufacturing SMEs and which make

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tax returns to KRA. According to KRA (2012)

there are currently 594 SMEs which meet this

condition in Nairobi. These SMEs are distributed

across the administrative units. From these

manufacturing SMEs, all the sales and marketing

managers constituted the target population

because they are directly in charge of export

business of these SMEs.

Target Population

Respon

dent

Manufa

cture of

Agricult

ural

Produce

Manufa

cture of

furnitur

e

Manufa

cture of

metal

Manufa

cture of

cosmeti

cs

Tot

al

Sales &

Marketi

ng

Manag

er

239 132 89 134 59

4

Source: KRA (2012)

Sampling Procedure and Design

Sampling Technique

Orodho (2005) sampling is a technique where

the investigator seeks knowledge or information

to a whole population and extending the findings

to the entire population. For this study stratified

random sampling was to select the sample size

from each stratum. Random sampling designs

are based on selections where each individual or

item has an equal chance of being represented

(Cooper & Schindler).

The SMEs in the population differ by type

Manufacture of Agricultural Produce,

Manufacture of furniture, Manufacture of metal

and Manufacture of cosmetics). In order to

ensure that these different categories are

adequately represented in the sample, stratified

sampling will be used. According to Nachmias

and Nachmias (1996), stratified sampling is used

primarily to ensure that different groups in the

population are adequately represented in the

sample. These are: Manufacture of Agricultural

Produce, Manufacture of furniture, Manufacture

of metal and Manufacture of cosmetics, (KRA,

2012). The SMEs in Nairobi County were

therefore first be classified according to whether

they are Manufacture of Agricultural Produce,

Manufacture of furniture, Manufacture of metal

and Manufacture of cosmetics). The population

was thus sub-divided into four mutually

exclusive strata which was based on the four

types of SMEs. The list obtained served as the

sampling frame from which a representative

sample of the population was obtained.

Sample Size

A sample is a representative subset of a

population (Nachmias & Nachmias, 1996).

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Orodho (2005) the extreme upper limit of the

sample size is 2000–3000 while the extreme

lower limit is 30 cases for statistical data analysis.

On this strength, the researcher selects a sample

size of 114 SMEs.

Sample Size

Stratum Population Percentage Sample

Size

Manufacture

of

Agricultural

Produce

239

0.2 45

Manufacture

of furniture 132

0.2 26

Manufacture

of metal 89

0.2 17

Manufacture

of cosmetics 134

0.2 26

Total 594 0.2 114

Data Collection Procedure

The study employed a questionnaire to collect

primary data. Questionnaire is appropriate for

studies since they collected information that was

not directly observable as they inquire about

feelings, motivations, attitudes,

accomplishments as well as experiences of

individuals (Mellenbergh, 2008). The

questionnaire comprised of both open and

close-ended questions. Franker (2006) stated

that a questionnaire is useful in obtaining

objective data because participants are not

manipulated in any way by the researcher.

The data instrument addressed the five research

objectives while it was sub-divided into two

sections. The first section of the questionnaire

enquired general information about the

respondents, while the next sections sought to

answer the five objectives. The quantitative

section of the instrument employed both a

nominal and a Likert type scale format to

determine each of the variables. A 5 point Likert

scale ranging from 1 to 5 was used as answers to

statement like questions. The Likert - type

format were selected as the format yields equal

- interval data, a fact that it allows the use of

more powerful statistical to be used to test

hypotheses (Kiess & Bloomquist, 2008).

Pilot Testing

A pilot study was undertaken to 11 SMEs owners

and operators. The purpose of the pilot testing

aimed to establish the validity and reliability of

the research instruments and hence enhance

face validity (Joppe, 2000). The pilot groups were

selected through random sampling. The rule of

thumb is that 1% of the sample should constitute

the pilot test (Cooper & Schilder, 2011). The

proposed pilot test was within the

recommendation.

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Validity

According to Mugenda and Mugenda, (2003)

validity is the accuracy and meaningfulness of

inferences, based on the research results. One of

the main reasons for conducting the pilot study

will be to ascertain the validity of the

questionnaire. The study used both face and

content validity to ascertain the validity of the

questionnaires. Gillham (2008) stated that the

knowledge and skills covered by the test items

should be representative to the larger domain of

knowledge and skills.

Reliability

Reliability of the questionnaire was evaluated

through administration of the said instrument to

the pilot group. A construct composite reliability

co-efficient (Cronbach alpha) of 0.6 or above, for

all the constructs, was considered to be

adequate for this study.

Data Analysis

Before processing the responses, data

preparation was done on the completed

questionnaires by editing, coding, entering and

cleaning the data. The study generated both

qualitative and quantitative data. Quantitative

data was coded and entered into Statistical

Packages for Social Scientists (SPSS Version 17.0)

and analyzed using descriptive statistics.

Qualitative data was analyzed based on the

content matter of the responses. Responses with

common themes or patterns were grouped

together into coherent categories.

The descriptive statistical tools help in

describing the data and determining the

respondents’ degree of agreement with the

various statements under each factor.

Descriptive statistics involved the use of

absolute and relative (percentages) frequencies,

measures of central tendency and dispersion

(mean and standard deviation respectively). The

study also employed inferential statistics to

establish the factors affecting SMEs participation

in export trade. Specifically, the study used

Spearman correlation to establish this

relationship.

The following regression equation was used;

Y = β0+β1X1+β2X2+β3X3+β4X4+е

Where Y= Participation

X1= firm characteristic

X2 = skill labour

X3 = government assistance

X4 = foreign investment

℮ = Error

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DATA ANALYSIS AND INTERPRETATION OF

FINDINGS

The purpose of the study was to analyze factors

influencing participation of small medium

enterprises in export trade in Kenya with focus

to manufacturing SMES in Nairobi County. Data

composed was collated and reports were

produced in form of tables and figures and

qualitative analysis was done in prose.

Response Rate

The study targeted a sample of 114 respondnets’

with their business being involved in export

trade. However, out of 114 questionnaires

distributed 87 respondents completely filled in

and returned the questionnaires, this

represented a 76% response rate. According to

Mugenda and Mugenda (2008) this is a reliable

response rate for data analysis for generalization

a response rate of 50% is adequate for analysis

and reporting, 60% is good and a response rate

of 70% and over is excellent.

However, 24% of the respondent were reluctant

to responded to fill the questionnaire this was

due to reasons like, the respondent were not

available to fill them in at the required time. The

response rate demonstrates enthusiasm of the

respondents’ to partake in the survey that the

study sought.

Response Rate

Frequency Percentage

Response 87 76

Non response 27 24

Total 114 100

Demographic Characterization of the

Respondents

As part of the general information, the research

requested the respondents to indicate the

duration of their business operation, legal

ownership of their business and number of

employees that their business had employed.

Duration of Business Existence

The respondents were required to indicate the

length of time that their business enterprises

had been in existence. 33.3% of the respondents

indicated that their enterprises had been in

existence for a period of 1 to 5 years, 30.3% of

the business enterprises that were surveyed had

been in existence for 6- 10 years, 15.2% of them

indicated that they had been operating in the

country for 16 – 20 years, while only 3.0% of the

respondents indicated that their enterprises had

been in existence for a period of more than 20

years.

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Duration of Business Existence

Duration of Existence Frequency Percent

1 – 5 years 29 33.3

6- 10 years 26 30.3

11- 15 years 16 18.2

16 – 20 years 13 15.2

More than 20 years 3 3

Total 87 100

Legal Business Ownership

The study requested respondents to indicate the

type of ownership of the business enterprises

they operate. According to the results, majority

(52%) of the respondents indicated that their

enterprises were private limited companies, 27%

of the enterprises were partnerships while 21%

of the respondents worked in sole trader owned

enterprises. This shows that most of the SMEs in

manufacturing sectors are privately owned by

the locals and even foreigners.

Legal Business Ownership of Business

Enterprises

Number of Employees

Further the study also sought to establish the

size of the companies in terms of number of

employees. 45.5% of the business enterprises

had between 11 and 20 employees, 24.2% of

them had less than 10 working employees, 15%

of the enterprises had between 20-30

employees, 9.1% of the respondents worked in

enterprises which had between 30-40

employees while 6.1% of the respondents

indicated that their enterprises had between 40–

50 employees.

From the findings, it is clear that most of the

SMEs are still small as depicted by their number

of staff they have employed. Most of the SMEs

have employed less than 20 employees.

Number of Employees

Number of Employees Frequency Percent

Less than 10 21 24.2

11-20 40 45.5

20- 30 13 15.2

30- 40 8 9.1

40 – 50 5 6.1

Total 87 100

21%

52%

27%Sole trader

Private limitedcompany

Partnership

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Benefits Accrued from SMEs Participation on

Export Trade

From the findings, creation of employment,

increased productivity, economies of scale and

larger international markets were ranked as the

main benefits accrued to a great extent when

SMEs participate in export trade as indicated by

mean score of 4.15, 4.01, 3.77and 3.73

respectfully. Increased efficiency and greater

technological are realized to a great extent as

shown by mean 3.66 and 3.64 respectfully. On

other hand, specialization, product innovation

and markets expansion were realized to a

moderate extent as depicted by mean score of

3.57, 3.52 and 3.45 respectively. Export activities

stimulate growth in a number of ways such as

production and demand linkages, economies of

scale due to larger international markets, among

others (Were, 2002).

Benefits of SMEs Participation on Export Trade

Mean STDev

Demand linkages 3.74 1.041

Increased efficiency 3.66 1.133

Specialization 3.57 0.899

Creation of employment 4.15 1.009

Larger international markets 3.73 0.87

Product innovation 3.52 1.168

Economies of scale 3.77 1.297

Increased productivity 4.01 1.196

Greater technological 3.64 1.284

Markets Expansion 3.45 0.943

Firm size and its effect on SMEs Participation in

Export Trade

The researcher requested the respondent to

indicate whether their business size affect their

firm to participate in export trade. From the

findings, majority (73%) of the respondents’

indicated that firm size affect their business to

participate in export trade while the rest (27%)

of the respondent indicated that firm size does

not affect them in participating in export trade.

According to Calof (2004) smaller companies

experience more growth opportunities and a

higher flexibility, hence improve export

performance. This implies that most of large

SMEs identify foreign business opportunity that

they exploit by exporting their product to other

countries.

Firm size and its effect on SMEs Participation in

Export Trade

Firm Years of Experience

73%

27%

Yes

No

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From the findings, most of the respondent

indicated that marketing participation, business

networks, duration of operation and employee

experience are the major aspects of firm year of

experience as indicated by mean score of 3.84,

3.84, 3.74 and 3.73 respectively. Skills adopted,

date of establishment, trading on foreign

markets, mode of exporting and technology

advancement affects firm participation in export

trade to a great extent as shown by mean score

of 3.67, 3.66, 3.63 and 3.56 respectively. the

findings confer to Majocchi (2005) that

experience influencing export trade as it gives

the company more maturity in terms of

management. The positive relationship between

the number of years of exporting and export

performance is moderated (Ursic & Czinkota,

2004). Firm overall experience is the age of the

company, assessed through its date of

establishment or the number of years since it

was create.

Firm Years of Experience

Mean STDev

Duration of operation 3.74 1.041

Date of establishment 3.66 1.133

Mode of exporting 3.57 0.899

Marketing participation 4.15 1.009

Employee experience 3.73 0.87

Business networks 3.84 0.746

Trading on Foreign markets 3.63 0.808

Skills adopted 3.67 1.131

Technology advancement 3.56 0.913

Extent to which Firm Characteristics affects

SMEs Participation on Export

Majority (58%) of the respondents’ purported

that firm characteristics affects SMEs

participation on export to a great extent, 23%

were of the opinion firm characteristics affects

SMEs participation on export to a very large

extent while 19% argued that firm characteristics

affects SMEs participation on export to a

moderate extent. Duenas and Caparas (2006)

pointed that there is a positive linear and

negative non-linear relationship between firm

size and export performance as measured by

export sales to total sales. From the findings, this

firm characteristic provides a company with a

stronger network as well as a better knowledge

of the industry which does constitute a driver for

a better export performance.

Firm Characteristics on SMEs Participation on

Export

.0

20.0

40.0

60.0

moderateextent

greatextent

very greatextent

19.2

57.5

23.3

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Skilled Labour SMEs Participation in Export

Trade

Majority (96%) of the respondents indicated that

skilled labour influence SMEs participation in

export trade while 4% diverged with the majority

opinions. Dueñas (2006) skilled manpower is one

of the important determinants of a firm’s export

decision, since higher skilled labour is associated

with higher labour productivity which will affect

a firm’s export decision. This reveals that SMEs

with more skills and experienced staff is more

likely to perform and participate better in foreign

market and particularly export trade compared

to firm with less skilled staff.

Skilled Labour SMEs Participation in Export

Trade

Frequency Percent

Yes 83 95.9

No 4 4.1

Total 87 100

Skilled Labour and its Effects on Firm

Participation on Export Trade

Mean STDev

We have higher skilled employees resulting to

higher labour productivity which affect a

firm’s export decision

4.31 0.276

Diffusion of knowledge and skills to a wider

business community was the first step to

initiate when participating in export activity

4.37 0.559

Our firm upgrade employees skills through

training and intra-industry transfer of talented

workers

4.05 0.358

Our firm is very keen to recruit skilled

employees who have a significant and positive

effect on the export decision of our firm

4.00 1.109

Our organization consider skills as

determinant of individuals’ adaptability to

new settings

4.34 0.771

We find it easy to grow because we have

employees who have the right knowledge,

skills, and abilities are able to fill critical jobs

3.97 1.176

Professionalism of employees in our

organization has influenced our firm to

participate in export activities

4.28 0.66

Assistance Programme Provided by

Government

The study further aimed to investigate whether

there government provided assistance

programme to SMEs participating in export

trade. Majority (63%) of the respondents

indicated that government provided assistance

programme to SMEs participating in export trade

while 37% were of the opinion that there was no

any government assistance. Wu and Cheng

(2009) found that government financial support

contributes positively towards the international

competitiveness of township and village

enterprise’s export performance.

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553 | P a g e

Ownership and its Effect on SMEs Participation

in Export Trade

Figure 4.12 shows the result of the findings on

whether ownership affect SMEs participation in

export trade. Majority (60%) pointed that

foreign ownership of a firm influence SMEs

participation in export trade while the rest 40%

were of the opinion that foreign ownership of a

firm influence SMEs participation in export

trade. Greenaway et al. (2007) found that

foreign ownership had a significant and positive

effect on export participation. This positive

result implies that an increase in foreign

participation also encourages firms to

participate in export markets, since foreign

partners bring access to new foreign markets

and distribution facilities.

Ownership and its Effect on SMEs Participation

in Export Trade

Inferential Analysis

Coefficient of Correlation

To compute the correlation (strength) between

the study variables and their findings the

researcher used the Karl Pearson’s coefficient of

correlation (r). It was clear that there was a

positive correlation between SMEs participation

on export trade and firm characteristic as shown

by a correlation figure of 0.523, there was a

positive correlation between SMEs participation

on export trade and skilled labour with a

correlation figure of 0.614, there was also a

positive correlation between SMEs participation

on export trade and government assistance with

a correlation value of 0.746 and there was a

positive correlation between SMEs participation

on export trade and foreign investment with a

correlation value of 0.521. This shows that there

was a positive correlation between SMEs

participation on export trade and firm

characteristic, skilled labour, government

assistance and foreign investment.

Exp

ort

Tr

ade

Par

tici

pat

ion

Firm

char

acte

rist

ic

Skill

ed la

bo

ur

Go

vern

men

t

assi

stan

ce

Fore

ign

inve

stm

ent

Expo

rt

Trad

e

Parti

cipat

ion

Pears

on

Corre

latio

n

1

63%

37%Yes

No

.0

100.0

Yes No

60.3 39.7

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554 | P a g e

Sig.

(2-

taile

d)

Firm

char

acter

istic

Pears

on

Corre

latio

n

.523 1

Sig.

(2-

taile

d)

.003

2

Skille

d

labo

ur

Pears

on

Corre

latio

n

.614

0

.342

1

1

Sig.

(2-

taile

d)

.002

1

.001

4

Gove

rnme

nt

assis

tanc

e

Pears

on

Corre

latio

n

.746

0

.124

0

.062

1

1

Sig.

(2-

taile

d)

.004

3

.012

0

.004

3

Forei

gn

inves

tmen

t

Pears

on

Corre

latio

n

.521

0

.342

0

.000

0

.166

0

1

Sig.

(2-

taile

d)

.017

2

.003

1

1.00

0

.003

1

Model Summary

The coefficient of determination was carried out

to measure how well the statistical model was

likely to predict future outcomes. The coefficient

of determination, r2 is the square of the sample

correlation coefficient between outcomes and

predicted values. As such it explains the

contribution of the four independent variables

(firm characteristic, skilled labour, government

assistance and foreign investment) to the

dependent variable.

All the four independent variables that were

studied, contributes to 83.4% on SMEs

participation on export trade as represented by

the adjusted R2. This therefore means that other

factors not studied in this research contribute

16.6% of the SMEs participation on export trade.

Therefore, further research should be conducted

to investigate the other factors (16.6%) that

influence SMEs participation on export trade.

Model Summary

Model R

R

Square

Adjusted

R Square

Std.

Error of

the

Estimate

1 0.913 0.834 0.751 0.4538

Multiple Regression

As per the SPSS generated table 4.19, the

equation

(Y = β0 + β1X1 + β2X2 + β3X3 + β4X4+ ε) becomes:

Y= 1.308+ 0.558X1+ 0.785X2+ 0.620X3+0.731X4

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555 | P a g e

The regression equation above has established

that taking all factors into account (firm

characteristic, skilled labour, government

assistance and foreign investment) constant at

zero, SMEs participation on export trade will be

1.308. The findings shows that taking all other

independent variables at zero, a unit increase in

firm characteristic will lead to 0.558 increase of

SMEs participation on export trade; a unit

increase in skilled labour will lead to 0.731

increase SMEs participation on export trade; a

unit increase in government assistance will lead

to 0.785 increase SMEs participation on export

trade and a unit increase in foreign investment

increase SMEs participation on export trade

0.620. This infers that government assistance

contribute most to SMEs participation on export

trade followed by skilled labour then foreign

investment while firm characteristic contributed

the little to participation on export trade. This

notwithstanding, all the variables were

significant as their P-values were less than 0.05.

Regression Coefficients

AModel

Unstandardiz

ed

Coefficients

Standar

dized

Coeffic

ients

t Sig. B

Std.

Error Beta

(Constant) 1.3

08

1.342 1.6

23

0.3

57

Firm characteristic 0.5

58

0.310 0.172 4.3

42

.02

76

Skilled labour 0.7

31

0.156 0.210 3.5

32

.02

85

Government assistance 0.7

85

0.322 0.067 3.5

42

.02

02

Foreign investment 0.6

20 0.245 0.148

3.4

58

.02

49

Conclusion

The study aimed at finding out factors

influencing participation of small medium

enterprises in export trade in Kenya with focus

to manufacturing SMES in Nairobi County. Based

on the findings, the study concluded that firm

size affect their business to participate in export

trade where firms that has been in the business

for many has more experience in export

activities and that they have adequate number

of employees diverse qualification who place

SMEs in better position to participate in export

activities. SMEs that have engaged on export

activity are making a precise turnover from the

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556 | P a g e

products they sell, investing heavily on required

equipment to facilitate export such as assets

gives us competitive advantage in export and

that stronger network on sources of good to

export has given us better knowledge which has

accelerated them better export performance to

a great extent.

To the objective of skilled labour, the study

found that that skilled labour influence SMEs

participation in export trade. Likewise, the study

found that diffusion of knowledge and skills

influences firm participation on export trade to a

wider business community was the first step to

initiate when participating in export activity.

On government assistant programmes, the study

concluded that government provided assistance

programme to SMEs participating in export trade

government had imposed favorable policies that

enable us to engage in export trade, government

provide financial support contributing positively

towards the international competitiveness and

government provide us with training support.

To the objective of foreign investment, the study

concluded that ownership of a firm influence

SMEs participation in export trade. Also the

study concluded that SMEs adhere to the

international standards set to govern export

trade to a great extent. Manager’s expertise and

commitment in export play a positive role in

export performance and that firm is owned by

foreigner and bring access to new foreign

markets and distribution facilities, new products,

managerial know how, and advanced production

technology influence their participation on

export trade to a great extent.

Recommendation

The study recommended that managers of SMEs

participating in export trade need to take into

account the marketing and trading dimension of

their activity which plays a substantial role in

their success. This dynamic and willing behaviour

and management can be represented by the

construct entrepreneurship.

On skilled labour, the study recommended that

management should ensure competency is

labour force since the idea of export

commitment is directly linked to that of export

orientation. Indeed, companies adopting an

export-oriented management are more likely to

experience better export performance. To be

export-oriented, one must be or become

market-oriented. Firms having this ability are

more able to catch international opportunities

available and to compete successfully.

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557 | P a g e

The study further recommended that

government to give priority on promoting SMEs

export activity, the promotion of SMEs and,

especially, of those in the informal sector will

provide sustainable development because it

suits the resources. Export promotion

programmes enable managers to get the

necessary information, competencies about

export markets, export techniques and

processes in order to compete successfully on

international markets.

The export success of an organization relies not

only on management-related determinants but

also on government policy-related

determinants. Also the study recommended that

the environment must be taken into account

because they constitute constraints and

opportunities a company must face and manage

when operating abroad.

On foreign investment, the study recommended

that management staff should recognize

collaboration with foreigners, since export

performance is influenced by controllable

internal determinants, attitudes and

perceptions. The study recommended that

resource and effort to be undertaken by

individuals in the firm, impacts on the innovation

and the degree of internationalization of the

firm, which improves its export performance.

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